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What is Inventory and how do manage it?
Inventory is a quantity of goods owned and stored by a business that is intended either for resale or as raw materials and components used in producing goods that the business sells. Generally, inventory types can be grouped into four classifications: raw material, work-in-process, finished goods, and MRO (Maintenance, repair and operation supplies) goods. Inventory represents one of the most important assets for a company because its turnover represents revenue for the company. There are 4 main basic functions that inventory serves in a business such as meet the anticipated demand for the products, safeguard against stock-outs, and facilitate production requirements and segment operations.
Types of Inventory
Raw Material
A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished products, energy, or intermediate materials that are feedstock for future finished products. In a simple sentence it is the basic material from which a product is made. In order to produce any finished products it requires raw materials, which are then processed and made into finished goods. It is important to maintain raw materials inventory in the proper quantity and at the right place to avoid any mishaps since the finished products that we sell are made from these materials.
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Work in process
Work in process represents partially completed goods. These goods are also referred to as goods-in-process. For some, work in process refers to products that move from raw materials to finished product in a short period. Work in process is usually measured at the end of an accounting period to most accurately value how many incomplete goods are still sitting within the production process. Once the goods are finished, the cost is transferred to the finished goods account, then eventually to the cost of goods sold.
Finished Goods
Finished goods are products that have gone through all manufacturing processes, but have not yet sold. A good of this kind can serve as a piece of inventory for a store or sit in storage in a warehouse. These goods do not make money for a business until they are purchased, though they do count as assets. Examples of finished goods include clothing, processed food, and appliances. Something like an orange is not considered finished, though it is sold and shipped.
MRO (Maintenance, Repair and Operation)
MRO inventory stands for maintenance, repair, and operation inventory. The MRO inventory meaning is all the consumable materials, supplies, and equipment needed for manufacturing that aren’t a part of ending finished goods inventory. MRO includes spare parts, lubricants, tools, safety gear, and other consumables that do not make it into the final product (or service).
What is Inventory Management?
Inventory management refers to the practices and processes used to control inventory holding levels, minimize costs and bottlenecks and manage current and future stock requirements. It is used to manage required service levels for internal and external customers and inventory visibility in supply chains. In other words, Inventory management refers to the process by which you track the amount of product you have on your warehouse shelf, in store or sitting with other retailers and distributors. This enables you to succeed in having the right number of units in the right place, at the right time and for the right price. When effectively tracking and controlling your physical inventory, you’ll know how many of each item you have, when you might be running low on products and whether you should replenish that item in order to keep selling it. Organizations from small to large businesses can make use of inventory management to track their flow of goods. There are numerous inventory management techniques, and using the right one can lead to providing the correct goods at the correct amount, place and time.
Good Inventory Management optimizes the supply chain and increases reliability, effectively minimizes the chances of lost sales, costs can be reduced as well. In order to meet good inventory control many companies now turn to software to help them control several aspects of inventory management. Some eCommerce tools and standard warehouse management systems (WMS) come with inventory control and order support as their core functionality. One significant benefit of inventory management practices is that they help you understand how and when to reorder your products and supplies. They can make it easy to avoid stock outs, which not only cost you but can also disrupt your supply chain, keeping your operations running smoothly and efficiently.
WMS( Warehouse Management System)
A warehouse management system (WMS) is software that is designed and built to optimize the warehouse, distribution, supply chain, and fulfillment processes within a business. Sophisticated warehouse management systems are also designed to integrate with a wide range of internal and external software systems, including Enterprise Resource Planning Systems, Supply Chain Management Systems, Inventory Management Systems, Transportation Management Systems, Barcode Scanning Systems, and Ecommerce platforms.
Features of WMS
Barcode and RFID scanners compatibility
Providing real-time data streaming
Inventory location recommendations
Picking and packing options
Product tracking
Warehouse layout planning
Kitting, Creating reports
Billing and invoicing
Integration with ERP and other software
Customization opportunities
On-Cloud basis, etc.
